What it looks like
Swing highs keep getting higher and swing lows keep getting lower, so the lines through them spread apart. At least two highs and two lows are needed. The breakdown is a close below the most recent swing low.
What it means
The market is nervous, swinging further each way. A close below the last low means sellers cleared the latest swing, but in a market this unsettled the move can snap back. It is a sign of nervous trading more than a clean signal.
How to trade it
- 1
Draw lines through the widening highs and lows.
- 2
Confirmation: a candle closes below the last swing low.
- 3
Entry: sell that close, with reduced size.
- 4
Stop: back inside the range. Example on US30: last low 46,800, close below at 46,780. Sell at 46,780, stop at 46,900, a 120 point risk.
- 5
Target: a modest multiple of the stop, such as 1.5 to 2 times, since there is no measured target.
A close back above the level that broke, the last swing low.
Where it works best
In volatile, news heavy periods on indices and gold, where megaphones are most common; small size remains sensible.
WickSpeak spots broadening breakdowns automatically and labels them on the candles that made them. Each note says what it is, why caution is needed, how to trade it and the close that proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Treating it as a clean signal and trading full size.
- Using the far side of the megaphone as the stop, which can be enormous.
- Selling straight into the lower line of the megaphone where buyers have stepped in before.
Related patterns
Questions traders ask
What does a megaphone pattern mean?
It means the market is getting more volatile, with each swing reaching further than the last. Neither side has control.
How reliable is a broadening breakdown?
Less reliable than tidy patterns such as flags or rectangles. Backtest it on your market in Playbook before trusting it, and trade it small.
Where does the stop go?
Back inside the range, above the low that broke, rather than at the far side of the megaphone.
What cancels the breakdown?
A close back above the low that broke. That means the wild swings are continuing.